Associated British Foods said on Monday the outlook for its Primark fashion business was improving, though it cautioned its food businesses were facing increasing inflationary pressures.
The group said sales and adjusted operating profit for its first half to March 5th would be "strongly ahead" of the prior year and ahead of pre-Covid 19 levels, reflecting a better performance from Primark, which trades in Ireland, where it was founded, as Penneys.
However, it said sales at the budget clothing retail division were still below pre-pandemic levels as Omicron deterred some shoppers from leaving their homes. Primark’s sales were forecast to be well over 60 per cent ahead of last year at constant currency with an operating profit margin of 11 per cent.
The improved outcome reflected all Primark stores remaining open and trading throughout the period, except for short spells in Austria and the Netherlands. That compared to prolonged periods of store closure in Ireland, Britain and Europe in the first half of last year.
Primark had been hurt more than some rivals by European lockdowns and restrictions around Covid because the chain lacks an online business to fall back on.
“Omicron really reduced footfall in December but now, across the piece, we’re seeing footfall improving,” finance chief John Bason told Reuters, highlighting strong demand for luggage and swimwear.
The effect of inflation on raw materials and the supply chain in Primark was broadly mitigated by a reduction in store operating costs and overheads and a favourable dollar exchange rate. It said in January it would not raise prices for spring/summer.
Last month, Primark said it plans to cut 400 jobs to reduce costs.
Food business
The group said all its food businesses had experienced increasing inflationary pressures in raw materials, commodities, supply chain and energy.
Steps have been taken to offset these higher input costs through operational cost savings and in the grocery, ingredients and agriculture businesses, the implementation of price increases. However, the group cautioned the price rises inevitably lag input cost inflation.
As a result, it expects some margin reduction in these three businesses at the half year but expects a recovery by the financial year-end.
Shares in the group closed down 2.9 per cent.
AB Foods’ grocery brands include Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks.
Mr Bason also cautioned that Russia’s invasion of Ukraine could drive global wheat prices higher.
The group expects further growth in profit at AB Sugar at the half year. AB Foods outlook for the full year was unchanged with “significant progress” expected in both adjusted operating profit and adjusted earnings per share. – Reuters / Bloomberg
